Shale Takeovers Looming as Texas Discounted in Australia
Buyers seeking a piece of North America’s shale boom can find it in Australia.
Australian companies exploring for oil and natural gas that’s trapped in shale rock in the U.S. and Canada are valued at a median of 11 times their reserves, a 23 percent discount to their counterparts that are listed on stock exchanges in North America, according to data compiled by Bloomberg. The valuation gap -- driven by Australian investors who are more than 8,000 miles (12,800 kilometers) from the companies’ wells in Texas and Oklahoma -- may lure acquirers, said RBS Morgans Ltd.
Antares Energy Ltd. (AZZ) is among potential targets, with its Southern Star field in the Permian Basin in Texas worth more than twice the company’s $130 million market capitalization on the Australian stock exchange, estimates Hartleys Ltd. Adelaide- based Sundance Energy Australia Ltd. (SEA), which last month agreed to sell a North Dakota asset for more than the company’s market value at the time, could lure bidders with its remaining acreage that’s worth at least five times more than what’s reflected in the share price, said Bell Potter Securities Ltd.
“I expect many more transactions involving Australian players and the huge number of U.S. and international players currently looking to open up and exploit shale gas and shale oil,” Ben Griffiths, who helps oversees $1 billion in assets for Sydney-based Eley Griffiths Group Pty., said in a telephone interview. “The area is a hive of activity and that’s not going to lessen.”
Antares rose as much as 3.1 percent today before ending Sydney trading unchanged at A$0.485. Red Fork rose 4.3 percent, while Sundance was up 1.3 percent after rising as much as 3.3 percent earlier. Molopo fell 3.2 percent to A$0.605.
Eric McCrady, Sundance’s managing director, didn’t reply to phone messages seeking comment. David Prentice, Red Fork’s managing director, didn’t reply to a phone message or e-mail seeking comment on whether the company is undervalued and a takeover target.
Molopo isn’t in any takeover discussions, Chief Executive Officer Tim Granger said in a phone interview from Calgary. Granger said Molopo is undervalued, partly because of a lack of understanding among Australian investors about the company’s Wolfcamp project in Texas.
Antares has been approached by suitors interested in its Permian Basin projects and will consider bids that reflect valuations paid for similar assets, Chief Executive Officer James Cruickshank said in a telephone interview from Dallas. Antares, based in Perth, is also considering listing shares in the U.S., he said.
Formerly known as Amity Oil Ltd., Antares changed its name and shifted its focus to the U.S. in 2004, after scrapping its Whicher Range gas project in Australia and cutting reserves in Turkey. The company invested in the Permian Basin in 2011.
That basin, a 300-mile long geologic formation that has been gushing oil and gas for more than 90 years, is attracting interest from major international oil producers who quit the region in the mid-1980s when oil prices were lower. The development of so-called hydraulic fracturing to extract gas trapped in shale rock has opened formations formerly written off as uneconomic.
“Antares is definitely a candidate for transactional activity on a corporate and an asset basis,” Dave Wall, an analyst at Perth-based Hartleys, said in a phone interview. “Investors in Australia don’t have a deep understanding of the Permian. In Canada, it would be trading with a much higher market cap.”
Antares’s market value yesterday was A$124.6 million ($130 million).
Wall pointed to BreitBurn Energy Partners LP’s purchase of oil and gas properties next to Antares’s Southern Star field. Los Angeles-based BreitBurn paid $220 million for 9.5 million barrels of oil equivalent of estimated proved reserves, according to a statement. Based on that price, Southern Star could fetch as much as $294 million, Wall said.
Antares is worth A$1.22 a share, or more than twice its closing price of A$0.485 yesterday, according to a sum-of-the- parts valuation Wall published on Sept. 5.
Sundance last month said it would receive $172 million for a stake in North Dakota’s Williston Basin from Denver-based QEP Resources Inc. Sundance, which had a market value of about $162 million at the sale’s announcement, leapt 38 percent in one day.
Even after selling the Williston Basin acreage, Sundance’s concentration on areas rich in so-called natural-gas liquids such as propane may appeal to potential buyers, said Johan Hedstrom, an analyst at Bell Potter.
“U.S. companies are quite active in the shale space, particularly in assets with a liquids focus, and that’s what Sundance has,” Hedstrom said in a phone interview. “That makes them a standout.”
Hedstrom has a 12-month share-price estimate for Sundance of A$1.20 a share, 60 percent above yesterday’s closing price. The company’s Bakken formation assets are worth about $15,000 an acre, and other fields about $5,000 an acre, higher than the $1,000-per-acre value implied by its A$0.75 share price, he said.
Exxon Mobil Corp. (XOM), the world’s largest energy company by market value, last week said it will pay about $2 billion for Bakken shale assets in North Dakota and Montana. Royal Dutch Shell Plc (RDSA) this month agreed to buy oil and gas fields in the Permian Basin for $1.9 billion from Chesapeake Energy Corp. (CHK), paying about $3,131 an acre, data compiled by Bloomberg show.
“The oil shale assets are certainly being looked at by companies that need long-term reserves,” Krista Walter, a Sydney-based energy, oil and gas analyst at RBS Morgans, said in a phone interview. “Asset sales are common but company takeovers can happen as well.”
Still, the Australian companies aren’t fetching the valuations they deserve, said Bell Potter’s Hedstrom.
Eight companies with U.S. oil and gas assets have a median enterprise-value-to-reserves ratio of 11 times, data compiled by Bloomberg show. That includes Antares, which has an enterprise value of $178 million, or 7.2 times its proven and probable oil and gas reserves of 24.8 million barrels of oil equivalent, the data show.
The median of 25 North American companies with exposure to shale oil and gas, including EQT Corp. (EQT) and Range Resources Corp., is 14.3 times, the data show.
“We’re much better informed and educated about shale than we were 12 months ago, yet the Aussie companies with U.S. assets haven’t had much of a rerating,” Hedstrom said.
One reason for the gap is that Australian investors aren’t comfortable investing in assets so far away, said Antares’s CEO Cruickshank. Antares wouldn’t choose Australia as a trading venue if it were conducting a share sale today, he said.
“You get the highest possible valuation for assets when they are owned by the people who are closest to them,” he said. “Australians seem pretty comfortable investing in Asia. The Americans are very good at investing in Canada.”
Some Australian companies are also drawing a lower valuation because they have higher levels of debt than Australian investors are typically comfortable with, said Walter from RBS Morgans. This would be less of a problem for U.S. investors, she said.
Antares has net debt equivalent to 53 percent of its net assets, compared with an average of 85 percent of shareholder equity for the 25 North American companies, data compiled by Bloomberg show. Macquarie Group Ltd. has also agreed to lend Antares as much as $200 million under a debt facility.
“Many of these companies tend to have debt facilities in place for capital expenditure requirements and Australian investors tend to prefer companies that don’t have large debt facilities,” Walter said. “In the North American market, that’s more common.”
Molopo, another potential target, sold its Australian coal- bed methane holdings to PetroChina Co. in August so it could focus on the U.S. and Canada, while Red Fork has projects in Oklahoma covering a combined 145,000 acres, according to its website.
Molopo also is considering a listing on a North American stock exchange, potentially Toronto, CEO Granger said last month. The listing closer to its operations may help Molopo’s share price “get treated with a little more respect,” he said.
“It’s game-on over there, and for the right basins with the right producible characteristics, those assets will be keenly sought,” Griffiths, the fund manager, said. “We’ve seen a couple of successes and there will be a few that won’t work, but it looks like it has worked well for the Aussies.”
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